Open for business: Shawbrook's Warren Mutch on non-bank lenders and fund finance

Warren Mutch (pictured), head of speciality finance at Shawbrook Bank tells Alternative Credit Investor what he looks for in a new lending partner, and why his team has ventured into the fund finance market.

Alternative Credit Investor (ACI): Tell me about your work at Shawbrook Bank.

Warren Mutch (WM): I’ve been at Shawbrook since 2017. I head up the speciality finance team within the bank. Our customers are all specialist non-bank lenders, and our team are major funders to those lending businesses.

ACI: Why do you choose to work with non-bank lenders?

WM: That market has been around for many, many years. Coming out of the financial crisis, a number of banks were retrenching from certain markets, and at the same time we saw increasing levels of non-bank lenders launching, and those lenders obviously needed funding to grow their loan books. That trend has continued as the supply of credit has evolved away from more mainstream banks to challenger banks like Shawbrook and non-bank lenders.

ACI: What kinds of lenders does Shawbrook prefer to work with?

WM: We have around 85 customers, all lending businesses of one type or another. We tend to put them into three main buckets: consumer lenders; small- and medium-sized enterprise (SME) lenders; and property lenders.

Our typical facility size would be anywhere between £10m and £50m. That means that the lender is not a startup – the business is up and running, it’s originating loans in markets. We would then step in to help grow the business, and take it to the next stage.

ACI: What is the approximate split between those three buckets?

WM: It’s evolved a little bit over the last few years. Historically it probably was a third each. I’d say now between 50 and 60 per cent is in that property bucket, and the other two are quite evenly split.

The number of new entrants into the property subsector has been quite material. It’s relatively easy to launch a new property lending business, and we’ve seen a number of new entrants over the last five years. And these entities are obviously looking for funding to help grow their loan books. So it’s mainly been a demand-led aspect. Whereas by contrast, we’ve seen relatively few newer consumer lenders approaching us for funding.

ACI: Do you do any other types of lending?

WM: The specialism for our team is just to focus on non-bank lenders. Albeit we have started to do more fund finance in the last two or three years.

We started to see that lending businesses were being operated on occasion through a fund structure. So operationally, it looked and felt very much like the lending businesses that we were used to supporting over the years, but they were structured as a fund and were raising investor capital and were looking for a modest amount of leverage to support their lending activities. So we soft launched into providing funding to those types of funds.

We have tried to grow our remit in fund finance to incorporate some of the more traditional elements of fund finance, such as subscription facilities. More recently, we have been looking into traditional private equity funds too. We completed our first deal to an equity fund in the first quarter of this year. So we’re trying to broaden out that fund finance proposition as well.

ACI: What is your outlook on NAV financing?

WM: The fund finance market has historically been dominated by subscription facilities and investor call bridge facilities. And that product has worked very well for funds in the investment phase of the fund’s life. I think what funds are increasingly conscious of is funding in the second half of the life of the fund – so the realisation phase. And if you think about funds looking at buy and build strategies or maybe exits being delayed due to some macroeconomic challenges over the last few years, then having facilities available towards the back end of the life of the fund appears to us to be increasingly in demand. I think that trend will continue.

ACI: How do you choose your lenders?

WM: We try to work out, are they a good, growing, sustainable lending business in their chosen market? So in the property lending world, can they demonstrate that they can originate a return that is sufficient to cover its costs, including the costs of funding from Shawbrook, plus their operational costs and any bad debt costs that they may have? And if they can demonstrate that they can do that in a safe and sustainable manner, then those are the key high-level points.

We’re looking at their management team and track record. We’re looking at their policies and procedures, their systems, and then ultimately, their loan origination and redemption track record in their market. It could be their specialisms in a particular product. It could be their specialism in a particular geography. It’s just about understanding that niche and making sure that they’re operating successfully in that niche.

ACI: What is your view on private credit this year?

WM: We have seen an increase in the number of private credit funds interested in this market. But equally, there are credit funds that lend into all sorts of sectors. From a fund finance perspective, we provide facilities to private credit funds as well to help them grow their activities. So we expect to see private credit funds compete with us for those who are specialists in supporting lending businesses. But then equally, we do expect more opportunities to lend to private credit funds as they continue to grow.

ACI: What is your view on peer-to-peer lending?

WM: It’s not a sector that we’ve been active in. What we’ve seen over the years is that P2P lending has evolved. It was originally set up as a retail model, so individuals could put money into a P2P firm that would then lend to individuals or businesses. From what we’ve seen, that’s evolved towards institutional funds putting money into P2P platforms.

Those P2P platforms generally operate an off-balance sheet model, i.e. the loans are not necessarily on the balance sheet of the lending business, and rather, they are funded by the investors. Whereas for our team, the types of lending businesses we are funding are on-balance sheet lenders, where for every £100 loan, Shawbrook might put in £80, the lending business might put in £20 of their own money, and then they – the lender – would lend to the underlying borrower. So from an accounting perspective, the loan would sit on the lender’s balance sheet and the liability to Shawbrook would sit on the balance sheet as well.

We probably wouldn’t consider investing in P2P platforms, although we have seen lenders operate a mix of funding models. If they have a P2P operation and then a separate on-balance sheet operation, we would consider that.

ACI: What are your investing aims for 2025?

WM: We went through £1bn of limits to over 80 customers last year, and we’re broadly up to approximately £1.2bn currently. Our primary aim is to continue to grow our customer base and limits over the course of this year.

ACI: Do you have any more partnerships on the horizon?

WM: Certainly we’re looking to onboard new lenders. And that’s from a debt funding perspective. We would typically aim to onboard at least 10 new lenders each year. And so in that regard, we plan to expand.

We want to see a steady onboarding of new customers, but just as important is growing with our existing customers. So last year, for example, for our existing customers we increased limits by over £140m. It’s a really important strategy for us that once we’ve onboarded the business, we need to be able to grow with them as they expand their business. It’s that flexibility that a lot of our customers really value. And so we will hope to grow just as much by increasing our existing customers as onboarding new deals.